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Service tax on bpo services

29 February 2012

There is a company in USA which provides software support services to it clients in USA itself. It has opened another Company in India and outsourced its work (with same Directors). Is the Indian entity required to charge service tax on the billing to the foreign entity. The Indian entity does not directly bill the client. Also, if it is exempt as Export of Services, is it compulsory to get itself registered with Service tax

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4 Replies

Prasad (Sr. Manager) (617 Points)
Replied 29 February 2012

If the Indian entity is providing service & invoicing to its Parent / Client in USA, then this is export of service and no service tax on the said amount.

However if you are providing the service for Indian clients as per notification 14 in May 2011 it is not mere invoicing but “the benefit of the service should accrue outside India”.

If this condition is satisfied then there is no applicablity of service.

Regarding your question on registration if the total amount of revenue is above the prescribed limits in my opinion registration is required.

Adding to this if you are a 100% exports you could claim refunds on service tax paid to your vendors.

Prasad

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narinder_6in (56 Points)
Replied 29 February 2012

Thanks for the clarification. So if we get ourself registered, we continue to file nil returns or claim refund for small service tax paid on telephone bills,etc. Please advise

Also, we have been operating since around 2 years now and not got ourselves registerd? Would we be penalized for that. Of course we will not get any refunds from past or file any returns for that period

Prasad (Sr. Manager) (617 Points)
Replied 02 March 2012

it will not be nil returns, you will have to declare the export sales to the service tax. This becomes basis on which you will claim refunds.

For refunds it is a seprate set of procedure to fullow.

refer this link for details https://www.cbec.gov.in/refund-rebate/refundrebate-docs.pdf

regarding your query on being penalised, I don't see this happening as long as you have not done any domestic sale. I have handeled registration of a five year old service company.

Akshat (CEO) (21 Points)
Replied 30 August 2012

In relation to “associated enterprises,” section
92D(3) of India’s Income-tax Act, 1961 (the “IT Act”) provides that an assessing
officer or a Commissioner may, in the course of any proceeding under
the IT Act, require any person who has entered into an international transaction, to
furnish any information or document in respect thereof, and that such information
will have to be provided within a period of 30 days from the date of receipt of a
notice issued in this regard. A Foreign entity may outsource certain services to a resident Indian entity. If there is no business connection between the two, the non-resident entity will not be liable to tax under the Income Tax Act.